Select Committee on European Union Minutes of Evidence


Supplementary Memorandum by Michael Wild, Managing Consultant, ICL, on Scenario Planning

INTRODUCTION

  Over the past 10 years, ICL has transformed itself from a supplier of computer equipment to a provider of ICT-based services. Scenario planning—the systematic consideration of possible futures and the perils and opportunities they might contain—has provided important information to guide this transition. As ICL now moves to be a provider of e-business services to its customers, scenario planning continues to be a key aspect of decision-making, and increasingly also an element of the services ICL provides. We believe that scenario planning can play an important role in government too, enabling elected representatives, ministers, and officials to test policies against different possible futures, and to detect early evidence of one sort of future rather than another.

  This submission describes scenario planning, looks at some ways in which ICL uses it, and gives examples of publicly available scenarios. We believe scenarios to be rather different from the kinds of evidence which Parliamentary committees usually see. But provided their nature is taken into account, we think that they could form a useful background to committee investigations. It is our hope that this will stimulate members of the committee to consider ways in which scenario work might usefully inform its work.

What are Scenarios?

  Scenario planning is a set of processes for creating imagined but plausible futures, called scenarios. A scenario is a description of a possible future world based on interactions of known driving forces; scenarios are typically created in groups of two to five, in which the same driving forces interact in different ways to produce different outcomes. Scenarios are not:

    —  forecasts, predictions, or extrapolations;

    —  plans for options (but can help formulate both);

    —  numerical models;

    —  normative (no "preferred future");

    —  equally probable.

  Scenarios demonstrate, rather, that current actions may lead to very different outcomes—providing a means to handle uncertainty, rather than assume it away. Though not themselves predictive models, successful scenarios do usually embody two specific aspects of such models:

    —  the ability to anticipate real world behaviour, which may be unexpected, through changing the constraints imposed by the external environment or internal relationships;

    —  the ability to detect early confirming or disconfirming evidence—such as "trigger events"—in the real world.

How are they created?

  A scenario development exercise usually starts by defining the boundaries of the entity—company, industry, country, region, and so on— to be described, and the time-span to be considered. There are many ways to proceed from there, and a typical process will draw on many sources of information, for example:

    —  The views and knowledge of stakeholders, often elicited in a workshop;

    —  The views and knowledge of outside "experts" or interesting people", often elicited by interview;

    —  Known or partly known factors and systems such as demographics;

    —  Social, Political, Economic, Environmental, and Political trends (often called the "STEEP factors");

    —  Other relevant scenarios;

    —  Potential shocks and discontinuities;

    —  Existing "libraries" of possible future events and trends.

  The information gathered is then assembled into coherent and internally consistent analytical descriptions of possible future states at the end of the time-span, together with information on what happened on the way. At this stage the scenarios are usually given names which evoke their most distinctive characteristics—choosing these correctly can be a vital factor for effective use of the scenarios.

Who uses them?

  Scenario planning began in the aftermath of WW2, when the RAND Corporation and the Stanford Research Institute began looking at long-term planning techniques, often with military applications in view. By the mid 1960s it was beginning to move into business, with companies such as Shell, Corning, and GE sponsoring research institutes and incorporating scenario techniques into their own planning processes. Shell, for example, were able to react rapidly to the fall in gas prices in the late 1980s, detecting and acting on trigger events from their scenarios such as the arrival in power of Mikhail Gorbachev.

  Today, scenarios are widely used by businesses and public administrations to make their strategic decision-making more robust against a variety of future contingencies, and in particular to help choose between options where no obvious best choice exists based on today's knowledge.

SCENARIOS IN ICL

  ICL uses scenarios in its own business and with customers. An example of each which may be of interest to the committee is described briefly below. Further examples, and more detail, are in the paper by Gill Ringland attached.

Scenarios for Information Markets in 2005

  During 1995, ICL developed a set of scenarios for Information Markets in 2005, focussing on the question: "What added value will we provide to our customers in 2005?". Two scenarios were developed and given the evocative names Deep Sea and Coral Reef. Their major characteristics are shown on the diagram below:


  The detailed features of these two scenarios were:

Coral Reef

  Under the Coral Reef scenario the demanding and sophisticated customer is interested in new technology, and outsources or purchases systems integration because of the potential for IT to change their business.

  Coral Reef is largely deregulated or self-regulated, and exploits energy and innovation, with growth from Asia and new businesses in new areas. The competition to ICL is small, fast start-up companies.

  A multiplicity of devices would be available to connect to a number of competing services, with price wars and confusion.

  We thought that early indicators of a world behaving like the Coral Reef could include:

    —  Bill deregulating US markets passed in 1995, European countries meeting their deadlines, and Japan deregulating in 1999;

    —  AT&T sells NCR or Siemens sells SNI or Olivetti sells the PC business;

    —  Spin-offs increase relative to mergers in the media business;

    —  Digital sells its semiconductor business to TI, and TI sells its software business to CA;

    —  fabrication capacity in Asia (excluding Japan) exceeds that in Japan, Europe and North America combined by 2000;

    —  US & China establish a trade treaty in 1996;

    —  Information Society takes off in Europe;

    —  Microsoft and Intel constrained by anti-trust legislation.

Deep Sea

  In Deep Sea, demanding and sophisticated customers outsource or purchase systems integration because it is not their core business. They want a full range supplier to take the risk and reduce cost.

  Deep Sea is largely regulated by governments. The consumer would see a smaller range of offerings, with a lower bandwidth offering as the norm. The existing (mainly US) full range suppliers are ICL's competition.

  Devices would be packaged with the network, and only work with one service provider.

  Early indicators of Deep Sea could include:

    —  The early indicators of Coral Reef are not seen; eg the number of mergers increases relative to the number of spin-offs;

    —  UK, Spain & Denmark isolated at the 1996 Maastricht conference;

    —  US imposes punitive tax on a very visible Japanese export;

    —  Successful lobbying of European governments to introduce tough new penalties to combat crime;

    —  Windows 95 fails to meet expected shipments in Europe, compared to its take up in the US.

APPLICATION OF CORAL REEF AND DEEP SEA: D2D

  An example of the use of these scenarios in business planning was the case of D2D, ICL's contract electronics manufacturing business. ICL had already decided to concentrate on services, moving our volume product business into Fujitsu to achieve the economies of scale. But what should we do about D2D? It was a manufacturing services business employing about 2,500 people; profitable, highly regarded by outsiders, and with significant external revenues.

  We applied the Coral Reef and Deep Sea scenarios to the existing D2D business plan:

    —  In Coral Reef, the consumer electronics market booms, and networking demand explodes. Both provide ideal opportunities for contract manufacturing, but for very short runs and low cost items;

    —  In a Deep Sea world, the demand is mostly for PCs, terminals, servers, and higher end networking in the business world. The sources of competitive advantage in this world are a low rate of returned items and the ability to change specifications on the fly.

  When the D2D management team looked at the plan with the scenarios in mind, they realised that they had a default mindset very close to the Coral Reef scenario. The initial business plan was orientated towards tooling up for the Coral Reef markets, which would have involved a major investment. But when the team reconsidered their assumptions, they saw their business being dominated by Deep Sea characteristics. Therefore, with a revised business plan, we sold the business to Celestica in early 1997.

The combined impact of e-business and EMU

  The UK government has indicated concern that e-business in this country may be disadvantaged by lack of penetration in pan-European markets. This project is fundamentally similar to the one described above, but is orientated outwards—towards helping ICL's customers tackle this issue for their businesses. It is at a fairly early state of development.

  ICL's approach is to explore the differing business environments which EMU and e-business may create (depending also on other STEEP factors), examine with ICL's customers the resulting operational risks to their business, and help them develop e-business operational strategies in response. This approach has the advantage of enabling businesses to develop their strategy for Europe in parallel with that for e-business.

  We expect the use of appropriate scenarios to play a major part in this, both in extending customers' mindset (as in the D2D case), and in testing the robustness of proposed operational strategies.

PUBLICY-AVAILABLE SCENARIOS

  For obvious reasons, much scenario planning in business is done under conditions of commercial confidentiality. Several organisations have however prepared scenarios which are openly available and relevant to or indeed partly aimed at a public sector audience, for example:

    —  The Chatham House Forum has for several years been developing a set of global scenarios, culminating with the publication of Open Horizons: Three Scenarios for 2020 (RIIA, 1998) and The Engines of Change (RIIA, 2000);

    —  The EU commission's Forward Studies Unit has produced scenarios Europe 2010: Five Possible Futures for Europe (European Commission, 1999);

    —  As input to an OECD conference series, DeAnne Julius presented Policy Drivers for a Long Boom (in the Future of the Global Economy: Towards a Long Boom?, OECD, 1999);

    —  The University of St Andrews has prepared Scenarios for Scotland: Two roads into 2015. This project, of which ICL was a sponsor, produced two contrasting pictures: the High Road and the Low Road.

  We would commend these to the committee as examples of the sort of scenario work which could form a useful background to their inquiries.[1] It will be plain from what has been said above that scenarios will not give definite answers to questions such as those the committee is looking at in regard to e-commerce. But they can provide structured views of the future, which we hope would be helpful in assessing evidence provided by those—politicians, officials, and businesspeople—whose actions will shape that future.


1   ICL also supplied, as background information, using scenarios in ICL to develop and implement strategy, an article by Gill Ringland, ICL, Slough (ICL Systems Journal, Autumn 1999). Back


 
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